IEEJ © July 2015. All Rights Reserved.

10 July 2015
The 420th Forum on Research Work

Economic and Energy Outlook of Japan through FY2016
Is low oil price a silver bullet?
YANAGISAWA Akira, R. Ikarii, S. Iwata, R. Eto, K. Tomokawa, E.S. Lim, C. Onda, Y. Shibata and K. Ito

Executive summary of special topics
Restart of nuclear power generation | First restart under new control rules.
Streamlining of the restarts is important ▻pp.23-25▌ The Sendai Power Station received a final approval in May 2015 that it conforms to the new
regulation standards. It will be the first case to restart under the new rules that took effect in July
2013. It will be in commercial operations after a thorough pre-service inspection and the restart ofits reactors. This paper analyses the effects on the 3Es (Economy, Energy Security, and Environment)of four cases of different levels of nuclear power units approval and restart by the end of FY2016.
▌ The [Reference Scenario] assumes the restarts of other nuclear power units to proceed in FY2015
following the return to operation of the Sendai Power Station late this summer or early fall. By theend of FY2016, 13 units will restart and they will be in service on average for six months during
FY2016, for a total electricity generation reaching 63.9 TWh, which is 22% of the pre-earthquake
FY2010 level. Compared to FY2010, total spending on fossil fuel imports increases by JPY2.6 trillion,
increasing the average power generation cost by about JPY2,700/MWh. Relative to the same period,
the self-sufficiency rate decreases from 18.0% by 6.4% point whilst the energy-related carbon
dioxide (CO2) emissions increase by 10 Mt-CO2.
▌ In the [High Case] which assumes a total of 17 units to restart by the end of FY2016, total fossil fuelimports spending decreases by JPY1.2 trillion relative to the [Low Case] where only three units are
assumed to restart. In this comparison, the average power generation cost is lowered by about
JPY1,300/MWh, the self-sufficiency rate improves by 5.1% point and the energy-related CO2
emissions decrease by 55 Mt-CO2.
▌ The hypothetical [Highest Case] assumes that 24 units for which applications for conformity tests
have been submitted, excluding Oma Power Station which is under construction, do generate
electricity with a capacity factor of 80% in FY2016. Under this Case, compared to the [Low Case],
total fossil fuel imports spending decreases by JPY1.5 trillion, the average power generation cost islowered by about JPY1,700/MWh, the self-sufficiency rate is improved by 6.5% point and theenergy-related CO2 emissions are decreased by 70 Mt-CO2.
▌ Since the Great East Japan Earthquake, many issues such as the worsening of the balance of trade(mainly due to increasing fossil fuel imports for power generation), the lowering of theself-sufficiency rate and the increase in CO2 emissions, have emerged. Even with current
international energy prices at much lower level than one year ago, the extent to which nuclear
power plants can restart and operate has huge impacts and serious implications regarding theJapanese economy, energy security and environment (three Es).

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Figure 1 | Impacts of restarting nuclear power plants
Nuclear power

Power generation

Total spending on

generation (TWh)cost (JPY/kWh)fossil fuel imports

LNG imports (Mt)

CO2 emissions(Mt-CO2)(JPY trillion)
300

90

30

288
14

13.7

1,250

89.1
88.5

28

1,200

85

200

26

166 12

11.5 24
10.9

133
100

10.2 22
9.8

10

64
0

15

0
2010 2012 2014 2016

20
8.2
8
2010 2012 2014 2016

Historical

1,150

80
21.3
20.8
20.1

19.7
18.1
18
2010 2012 2014 2016

Low Case

1,192

83.3

25.1

Reference Scenario

75.8

75

70.6
70
2010 2012

72.2
2014

High Case

2016

1,172
1,149

1,139
1,117

1,100

1,102

1,050
2010 2012 2014 2016

Highest Case

Higher energy prices and related risks | Need to stay alert as lower prices
may be temporary ▻pp.26-27▌ As Japan is heavily dependent on fossil fuel-fired thermal power generation, the sudden decline inoil prices has been well received and considered as a blessing. In FY2014, JPY3.3 trillion was saved inimport value compared to the previous year. Of which, the drop in US$ based fossil fuel prices
contributed to a saving of JPY4.2 trillion in import value. On the other hand, the currency
depreciation over the same period increased it by JPY2.4 trillion. Lower import volumes also
contributed to the drop in import value.
▌ The possibility that international oil price will rise again remains. Each additional $10/bbl in oil prices
raises total fossil fuel imports spending by JPY1.9 trillion, reduces Japan’s GDP by 0.4% and worsens
its GNI per capita by JPY15,000. The need to establish a robust energy supply and demand structure
for Japan is required in order to achieve stability in economic growth without continuously be at themercy of international hick-ups.

Executive summary of outlook through FY2016 [Reference Scenario]
Macro economy | Japanese economy grows by 1.7% and 1.9% due toimprovements of domestic demand in FY2015 and FY2016 ▻pp.7-8▌ Japan sees its economic recovery strengthening towards the latter part of FY2015 with the economy
growing on average at 1.7% during the period. Private consumption gradually recovers due toimproved employment status; private investment improves supported by higher corporate profits
induced by lower oil prices; and exports benefit from the yen’s depreciation. For FY2016, theeconomic expansion continues and GDP grows at 1.9% for the period, led by a strong domestic
demand.

Energy supply and demand | Whilst total energy increases in FY2015
induced by economic recovery, it will decrease in FY2016▌ Total primary energy supply in FY2015 increases for the first time in two years due to economic
recovery and weather conditions. Despite a continued economic expansion for FY2016, energy

Economic and Energy Outlook of Japan through FY2016|2

IEEJ © July 2015. All Rights Reserved.

supply will shrink slightly due to the effect of energy conservation. The restart of nuclear power
plants and an increase in renewable energy will sharply reduce the oil and natural gas consumption.
▶pp.11-12▌ Total final energy consumption increases also in FY2015 for the first time in five years. The energy
consumption in all the sectors (i.e. industry, residential, commercial and transport) increases due to adecreasing effect from the previous year’s rise in VAT and weather conditions. In FY2016, final
consumption decreases in all sectors, except industry and the overall consumption will dip below the
FY2014 level. ▶pp.13-14

Energy sales | City gas and electricity grow. Fuel oil declines after respite▌ Electricity sales by utilities increase in FY2015, partially offsetting the large decline of the previous
year. Sales for lighting services, mainly to households, increase for the first time since the Great East
Japan Earthquake. Sales for power services, mainly large-scale power users, increase for the firsttime in two years, reflecting better economic conditions. The continued economic expansion
through FY2016 will further augment total sales for two consecutive years with sales for power
services to reach their largest level since the earthquake. ▶pp.15-16▌ City gas sales in FY2015 will reach a historical high induced by the recovery in manufacturingsector’s production activities, a more active service industry and the combined impact of a leap year
and of a colder winter. For a second consecutive year, the historical high in total sales of FY2015 will
be surpassed in FY2016. Sales to industry will lead the trend reflecting not only the anticipatedeconomic expansion but also some anticipatory production to cover for the demand increase thatwill precede the increase in the VAT, scheduled for April 2017. ▶pp.17-18▌ Total fuel oil sales show an overall small decrease while gasoline sales increase for the first time infive years due to economic recovery and lower crude oil prices. In FY2016, however, sales for all fueloil products will decrease to less than 180 GL, the lowest level in 47 years due to energy
conservation and fuel switching. ▶pp.19-20

Renewable power generation | Operational capacities will reach 63 GW. The
cumulative cost burden could be JPY50 trillion ▻pp.21-22▌ The rapid expansion of the past for renewable power generating capacity, supported by the Feed-in
Tariff system, is slowly subsiding due to the cancellation of approval for contracts without secured
land and/or facilities, setup grid connection-ready capacities or strengthened power control. Despite
such situation, the capacities in operation by the end of FY2016 will reach 63 GW. Coincidently, theunavoidable burden expands also. The cumulative cost burden for 20 years could be JPY50 trillion if
all of the approved 99 GW (of which 80 GW is solar PVs) by the end of February 2015 become
operational. This is equivalent to an increase of JPY2,900/MWh above the rates in place just before
FIT started – an increase of 12% for household and 17% for industrial consumers.

CO2 emissions | Reduce for three consecutive years ▻pp.11-12▌ Energy-related CO2 emissions reached a historical high of 1,235 Mt-CO2 in FY2013 but will decrease
for three consecutive years through FY2016. The restart of nuclear power plants combined with theincrease in renewable energy will considerably diminish oil and natural gas consumption, lowering
the emission amount down to 1,149 Mt-CO2 in FY2016. Total energy consumption will be less than
before the earthquake but CO2 emissions will remain high.

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Table 1 | Summary of Reference Scenario
Historical
Projections
Year-to-year changes
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016
Primary energy supply (Mtoe)1
Oil2 (GL)Natural gas2 (Mt of LNG equivalent)
LNG imports (Mt)
Coal2 (Mt)
Nuclear (TWh)Final energy consumption3 (Mtoe)
Industry4

EnergyBuildings
Transport
Petroleum products
Natural gas and city gas
Coal and coal productsElectricity
Electricity sales (TWh)City gas sales5 (Billion m3)
Fuel oil sales (GL)
Energy-related CO2 emissions (Mt)
(FY2013=100)

Prices

Crude oil, import, CIF ($/bbl)
LNG, import, CIF ($/t)
Steam coal, import, CIF ($/t)

EconomyCoking coal, import, CIF ($/t)
Nominal GDP (JPY trillion)
Real GDP (JPY2005 trillion)
Industrial production index (2010=100)
Exchange rate (JPY/$)

514.2
232.3
73.3
70.6
184.7
288.2
339.4
158.3
98.0
83.1
176.2
34.3
35.9
89.8
926.6
39.28
196.0
1,139
92.2
84
584
114
175
480.5
512.7
99.4
86.1

484.9
242.8
88.6
86.9
183.4
15.9
321.8
148.6
92.7
80.4
165.7
34.7
34.3
84.6
870.9
40.33
197.8
1,221
98.9
114
866
127
173
474.6
519.8
95.8
82.6

488.4
234.5
89.9
87.7
194.6
9.3
321.6
151.4
90.8
79.5
164.0
34.3
36.2
84.5
871.5
39.82
193.6
1,235
100.0
110
837
108
135
483.1
530.6
98.9
100.0

473.7
217.6
90.6
89.1
190.1
0.0
311.6
146.7
88.0
77.0
157.7
34.1
34.3
83.0
851.4
40.16
183.0
1,192
96.5
89
800
93
109
490.6
525.7
98.5
109.2

477.4
214.8
90.1
88.1
191.4
10.6
313.2
147.0
88.8
77.3
157.0
34.7
34.7
84.3
865.0
40.97
182.2
1,185
96.0
64
470
84
91
506.1
534.8
101.2
121.8

477.1 -3.0% 0.8%
205.8 -7.2% -1.3%
85.3 0.8% -0.6%
83.3 1.5% -1.1%
191.7 -2.3% 0.7%
63.9 -100%..
311.3 -3.1% 0.5%
147.0 -3.1% 0.2%
88.2 -3.1% 0.9%
76.0 -3.2% 0.5%
153.7 -3.8% -0.4%
35.4 -0.6% 1.9%
34.7 -5.3% 1.0%
84.9 -1.8% 1.5%
874.5 -2.3% 1.6%
41.69 0.9% 2.0%
176.0 -5.5% -0.4%
1,149 -3.5% -0.5%
93.1
..
..
69 -19.0% -28.3%
502 -4.5% -41.3%
89 -14.3% -9.5%
98 -19.6% -16.5%
516.2 1.6% 3.2%
545.1 -0.9% 1.7%
104.6 -0.5% 2.7%
125.0 9.3% 11.5%

-0.1%
-4.2%
-5.3%
-5.4%
0.1%
500%
-0.6%
0.0%
-0.6%
-1.8%
-2.1%
1.9%
0.1%
0.7%
1.1%
1.8%
-3.4%
-3.1%
..
8.6%
6.9%
6.0%
7.6%
2.0%
1.9%
3.4%
2.7%

Notes:
1. Mtoe = 1013 kcal
2. Conversion factors for Oil: 9,126 kcal/L; Natural gas: 13,043 kcal/kg; Steam coal: 6,139 kcal/kg; Coking coal: 6,928 kcal/kg until FY2012.
2. Conversion factors for Oil: 9,145 kcal/L; Natural gas: 13,141 kcal/kg; Steam coal: 6,203 kcal/kg; Coking coal: 6,877 kcal/kg since FY2013.
3. Final energy consumption and CO2 emissions in FY2014 are estimation.
4. Industry includes non-energy use.
5. Conversion factor: 1 m3 = 10,000 kcal

Economic and Energy Outlook of Japan through FY2016|4

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Introduction
The Japanese economy has taken substantial
time to recover after a VAT increase in April
2014 and is getting back on a recovery path. In
1Q2015, gross domestic product grew at a large
annualised rate of 3.9% in real terms for thesecond straight quarter of rise. Private
consumption posted a moderate recovery, while
private non-residential investment indicated arecovery sign supported by robust corporate
earnings. Exports showed a recovery trend
under the yen’s continued weakness.
In the international energy arena, the Brent oil
price slipped below $50 per barrel in January
2015 for the first time since March 2009. The spotliquefied natural gas price for Northeast Asia fell
to $6.6 per million British thermal units. In Japan,
the Advisory Committee for Natural Resources
and Energy put forward a projected 2030

electricity generation mix in April 2015,
indicating that nuclear should account for
20-22% of power generation in the year.
However, all nuclear power plants in Japan haveremained offline for more than 21 months since
mid-September 2013. For May 2015, all of thegeneral electric utilities raised electricity rates
since a renewable energy surcharge hike morethan offset fossil fuel price drops.
International oil and LNG prices are creeping up.
If they rise rapidly again, it will squeeze
corporate earnings and increase householdburdens.
With such present situation and risks in mind,
we have projected the Japanese economy andenergy supply and demand through FY2016,
and analysed implications of the various
projections.

Major assumptions in the Reference Scenario
World Economy
We assume that the world economy willcontinue a moderate recovery. The U.S. economy
will see overseas demand’s deceleration under astrong dollar while being supported by private
consumption expanding in line with an oil pricedecline and a fall in the unemployment rate. The
European economy, though featuring the Greek
debt problem as a matter of concern, willachieve a moderate recovery backed by low oil
prices, the weak euro and low interest rates. The
Asian economy will see China’s economic
growth deceleration. India’s growth, however,will surpass China’s in 2016, while the
Association of Southeast Asian Nations will log
firm growth rate of about 5%. The world
economy is assumed to grow 2.8% and 3.5% in
FY2015 and in FY2016, respectively.

Oil, LNG and coal import prices

Organization of the Petroleum ExportingCountries decided again not to reduce
production at its meeting in June. The oil import
CIF price for Japan, however, will risemoderately in response to a rapid fall in thenumber of oil drilling rigs in the United States in
FY2016. The price is assumed at $64/bbl for
FY2015 and $69/bbl for FY2016. The LNG import
CIF price is projected at $9.1/MBtu for FY2015
and $9.7/MBtu for FY2016. The supply-demandbalance for coal will slightly tighten. The steamcoal price is assumed at $84 per tonne for
FY2015 and $89/t for FY2016. The coking coalprice is projected at $91/t for FY2015 and $98/t
for FY2016.

Exchange rate
We assume the average dollar-to-yen exchange
rate at JPY121.8/$ for FY2015 and JPY125.0/$ for
FY2016.

We assume that the supply-demand balance willremain loose in the oil market after the

Economic and Energy Outlook of Japan through FY2016|5IEEJ © July 2015. All Rights Reserved.

Taxes
We assume that the VAT will be raised to 10% in
April 2017 and that the petroleum and coal tax
will be increased to JPY2,800 per kilolitre for
crude oil and petroleum products, JPY1,860/t forgaseous hydrocarbon and JPY1,370/t for coal in
April 2016.

Nuclear power generation
Based on progress in the assessment of nuclear
power plants’ conformity with new regulation
standards, pre-operation tests and otherprocedures, we assume that the Sendai Power
Station will resume commercial operation latesummer or early fall of 2015 to kick off a gradualrestart of nuclear power plants in Japan. A totalof five reactors will restart in FY2015, generating
10.6 terawatt-hours of electricity. By the end of
FY2016, a total of 13 reactors will restart,
generating 63.9 TWh in the year.

Electricity supply and demand
Based on discussions at the Electricity Supply
and Demand Verification Subcommittee, we
assume that each general electric utility cansecure a reserve capacity rate of 3% or more.

Temperature
Based on the three-month weather forecast by
the Japan Meteorological Agency, we assume
that demand for space cooling will rise in a
warmer late summer for FY2015 than for theprevious year before temperatures are normal in
the rest of the year and the next year. This meansa colder winter than in the previous year(-1.3 degrees Celsius) before temperatures are at
the same levels as a year earlier.

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Macro economy
In FY2015, the Japanese economy will getback on a recovery path and grow by 1.7%
primarily due to robust domestic demand
for the first positive growth in two years.
Among private demand components, private
consumption will grow year on year in allquarters of FY2015, supported by asset effects
coupledwithwage
hikes.
Privatenon-residential investment will increase ascorporate earnings improve further on
expanding domestic demand and exports.
Private demand as a whole will contribute 1.8%
to economic growth. Among public demand
components, public investment will fall for the
first time in four years, while social security andother government spending will increase. Publicdemand as a whole will make no contribution toeconomic growth. Exports will expand as theyen remains weak with U.S. and Asian
economies growing briskly. Imports will
increase despite a drop in fossil fuel imports asother imports grow. External demand will work
to lower the economic growth rate by 0.1%.
Nominal GDP will top JPY500 trillion for the
first time in eight years.
The trade deficit will narrow to JPY1.8 trillion.
Fossil fuel imports will decrease by
JPY8.9 trillion from the peak in FY2013 to
JPY19.5 trillion due to the oil price plunge. The

Economic and Energy Outlook of Japan through FY2016

consumer price index will rise by 0.3% due tothe weak yen, monetary easing, an economic
recovery and other factors, despite the oil pricedecline.

In FY2016, the Japanese economy willgrow by 1.9% on robust domestic demand
including continuously firm private
consumption and non-residential
investment.
Of private demand, consumption will expand
thanks to a further fall in the unemployment
rate and wage hikes. Non-residential investment
will also increase, backed by robust corporate
earnings in manufacturing and services
industries. Private demand will work to expand
GDP by 1.7%. Among public demand
components, social security and othergovernment spending will increase while public
investment will contract further. Public demand
as a whole will contribute 0.1% to economic
growth. Exports will continue expanding as theyen remains weak with overseas economies
recovering. Imports will rise in line withdomestic demand growth. External demand as awhole will work to boost GDP by 0.1%. The
trade deficit will expand to JPY3.4 trillion due toan upturn of oil prices. The consumer priceindex will increase by 0.8% due primarily to acontracting GDP gap.

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Table 2 | Macroeconomic indicators
Historical

Projections

Year-to-year changes

FY2010 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

Real GDP (JPY2005 trillion)
Private demand
Private consumption
Private residential investment
Private non-residential investment
Public demand
Government consumption
Public investment
Net exports of goods and services
Exports of goods and services
Imports of goods and services
Nominal GDP (JPY trillion)
Balance of trade (JPY trillion)
Exports
Imports
Fossil fuels
Oil
LNG
Domestic corporate goods price index (2010=100)

Consumer price index (2010=100)
GDP deflator (2005=100)

512.7 519.8 530.6 525.7 534.8 545.1 -0.9% 1.7% 1.9%
377.1 390.7 400.0 391.1 398.8 407.2 -2.2% 2.0% 2.1%
299.7 309.5 317.2 307.3 312.1 317.1 -3.1% 1.5% 1.6%
12.5 13.7 15.0 13.2 13.5 14.2 -11.7% 1.9% 5.5%
64.9 68.8 71.5 71.8 73.5 75.4 0.4% 2.3% 2.7%
118.5 120.8 124.5 125.4 125.3 125.9 0.7% -0.1% 0.5%
97.9 100.6 102.2 102.6 103.3 104.1 0.4% 0.7% 0.8%
20.7 20.3 22.4 22.8 22.0 21.8 2.0% -3.4% -1.0%
17.2
8.6
7.3 11.2 12.2 13.5 54.7% 8.7% 10.2%
83.9 81.4 85.0 91.9 97.5 101.7 8.0% 6.1% 4.3%
66.8 72.9 77.8 80.6 85.3 88.2 3.7% 5.8% 3.5%
480.5 474.6 483.1 490.6 506.1 516.2 1.6% 3.2% 2.0%
5.3 -8.2 -13.8 -9.1 -1.8 -3.4 -33.5% -80.5% 91.9%
67.8 63.9 70.9 74.7 80.8 84.7 5.4% 8.2% 4.9%
62.5 72.1 84.6 83.8 82.5 88.1 -0.9% -1.5% 6.7%
18.1 24.7 28.4 25.1 19.5 20.8 -11.6% -22.4% 6.6%
12.3 16.2 18.7 15.2 12.4 13.3 -18.4% -18.6% 7.2%
3.5
6.2
7.3
7.8
5.0
5.2 5.9% -35.1% 3.7%
100.2 100.5 102.4 105.3 103.4 104.3 2.8% -1.7% 0.8%
99.9 99.5 100.4 103.4 103.7 104.5 2.9% 0.3% 0.8%
93.7 91.3 91.0 93.3 94.6 94.7 2.5% 1.4% 0.1%

Notes: GDP components may not add up to the total GDP due to minor data deviations.

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Industrial production
Crude steel production supported by highvalued-added product exports will level off
from the previous year in FY2015. It willrise back to 110 million tonnes in FY2016.
In FY2015, exports of high value-added steel
products will grow under the weak yen,including those to Southeast Asia. However,domestic demand in the first half of the year
slipped below the year-before level. Crude steel
production will be below 110 million tonnes forthe second straight year, logging a 0.3% dropfrom the previous year. In FY2016, robust
external demand and domestic demand growthunder an economic recovery will lead crude
steel production to surpass 110 Mt for the firsttime in three years, scoring a 0.7% increase.

Ethylene plants will operate at their full
capacity with capacity cut in FY2015-2016.
In FY2015, ethylene production capacity will fallon a plant shutdown in May, with regular plantcheck-ups being less than in the previous year.
As users switch from imports to domestic
products, production decline will be limited to
0.6%. In FY2016, ethylene production capacity
will decline on a plant shutdown in the
beginning of the year. However, ethylene plants
will continue to operate at their full capacity inresponse to robust domestic and overseas
demand. Production in the year will fall by 3.4%.

Cement production will increase to
62 million tonnes in FY2015 and 63 Mt in
FY2016 as an economic recovery is coupledwith export growth.
Cement production in the first half of FY2015
will decline year on year. In the whole of FY2015,
cement production will rise by 1.5% from theprevious year to 62 million tonnes thanks to arebound in residential and non-residential
investment, steady demand for reconstruction
from the Great East Japan Earthquake andexport growth under the weak yen. In FY2016,

Economic and Energy Outlook of Japan through FY2016

cement production will increase by 1.6% fromthe previous year to more than 63 Mt, thehighest in nine years since FY2007, due to robust
residential and non-residential investment.

Paper and paperboard production will level
off with paper production failing to growin FY2015. Production will rise in FY2016
for the first time in three years due toextra demand before the next VAT hike.
In FY2015, paperboard production will increase
mainly for processed food products and delivery
services, while paper production will fall in linewith a long-term shift from paper to electronic
media. Paper and paperboard production willlevel off with a mere 0.1% fall from the previous
year. In FY2016, paperboard production will
expand on brisk private consumption. Paper
production will also rise due to a last-minutedemand increase before the next VAT hikescheduled for April 2017. Paper and paperboard
production will go up by 1.0%.

Automobile production will increase to
9.63 million in FY2015, supported bystrong exports. It will rise further to
9.8 million in FY2016 on robust domestic
and external demand.
Although domestic automobile demand will
decline year on year due to revisions to themini-vehicle tax and tax cuts for eco-friendly
vehicles in the first half of FY2015, it will
increase for the whole of the year in a reboundfrom a plunge caused by the VAT hike in April
2014. Exports will also expand thanks to thecontinuously weak yen, despite production
bases’ overseas shift. Automobile production in
FY2015 will score a small rise of 0.4% from thepreviousyear.
In
FY2016,
automobile
production will expand by 1.7% to 9.8 million
units as a private consumption recovery and alast-minute demand rise before the next VAT
hike are coupled with export growth.

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Table 3 | Industrial activities
Historical

Projections

Year-to-year changes

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

110.8 107.3 111.5 109.8 109.5 110.4
7.00 6.26 6.76 6.69 6.65 6.42
Cement (Mt)
56.1 59.5 62.4 61.1 62.1 63.0
Paper and paperboard (Mt)
27.3 25.7 26.7 26.3 26.3 26.5
Automobiles (Million)
8.99 9.55 9.91 9.59 9.63 9.80
Mining and manufacturing (2010=100)
99.4 95.8 98.9 98.5 101.2 104.6
Food
98.2 96.7 98.9 96.2 97.0 98.2
Chemicals
99.7 96.5 98.3 95.3 97.3 97.6
Non-ferrous metals
98.9 96.6 97.3 97.9 98.7 100.2
General and electrical machinery, etc. 101.3 93.2 97.6 100.0 105.1 112.0
Tertiary industry activity index (2005=100)
97.8 99.2 100.4 98.8 99.9 100.8
Ethylene (Mt)

Production indices

Production

Crude steel (Mt)

-1.5% -0.3% 0.7%
-1.1% -0.6% -3.4%-2.0% 1.5% 1.6%
-1.4% -0.1% 1.0%
-3.2% 0.4% 1.7%
-0.5% 2.7% 3.4%
-2.7% 0.9% 1.2%
-3.1% 2.1% 0.3%
0.6% 0.8% 1.5%
2.4% 5.2% 6.5%
-1.6% 1.1% 0.9%

Note: Chemicals include chemical fibre.
Note: General and electrical machinery includes general machinery, electrical machinery, information and telecommunications equipment,
electronic parts and devices, precision machinery and metal products.

Economic and Energy Outlook of Japan through FY2016| 10

IEEJ © July 2015. All Rights Reserved.

Primary energy supply
Primary energy supply will increase in
FY2015 for the first time in two years
thanks to an economic recovery before it
will fall slightly in FY2016 on continued
energy conservation efforts, despite an
economic expansion.

increasing though city gas demand will be firm.
Natural gas in FY2016 will fall by 5.3% for thesecond straight year of decline as natural
gas-firedpower
generation
decreases
substantially on the restart of nuclear power
plants. Still, natural gas in the year will be 17%
higher than in FY2010 before the earthquake.

Primary energy supply in FY2015 will increaseby 0.8% from the previous year for the first risein two years thanks to an economic recovery andtemperature factors. The increase, however, will
be limited to a quarter of the equivalent of thedecrease in the previous year due to the further
penetration of energy-efficient equipment. In
FY2016, primary energy supply will log a small
fall of 0.1% due to continued energy
conservation
effortsalthoughindustrial
production will continue expanding. Oil andnatural gas will decline substantially as more
nuclear power plants are restarted withrenewable energy use expanding.

Coal in FY2015 will increase by 0.7% from theprevious year as coal-fired power plants operate
stably as a base electricity source. In FY2016,
coal will post a slight increase of 0.2% asdemand for industrial uses expands on arebound in production by manufacturers suchas steelmakers and cement producers.

Oil in FY2015 will see a slower decline (1.3%)
than in the previous year due to a decelerating
switch from oil to other fuels for power
generation and the first rise in gasoline demandin five years. In FY2016, demand for oil,especially for power generation will post a
sharper decline of 4.2% as nuclear power plants
are restarted. Oil dependency – its share of total
primary energy supply – will slip below 40% for
the first time in 55 years.
Overall natural gas consumption in FY2015 will
decline by 0.8% from the record high in theprevious year for the first drop since the Great
East Japan Earthquake in 2011. Demand for
power generation will decrease in the year with
nuclear and renewable energy power generation

Economic and Energy Outlook of Japan through FY2016

Nuclear power generation in FY2015 will belimited to 10.6 TWh as seen in FY2013, although
the first nuclear power plant will resumecommercial operation in late summer or early
fall of 2015. As more nuclear power plants
restart operation in FY2016, nuclear will post thelargest growth among energy sources in the year.
Nuclear power generation, however, will still belimited to 63.9 TWh or a quarter of the FY2010
level before the earthquake.
Energy self-sufficiency rate will rebound to
11.6% thanks to the restart of nuclear power
plants in FY2016. However, the level will still be
6.4 percentage points lower than 18.0% for
FY2010 before the earthquake.
Energy-related carbon dioxide emissions in
FY2016 will drop for the third straight year after
peaking at 1,235 Mt in FY2013. The restart ofnuclear power plants and the expansion ofrenewables will allow oil and natural gas to
decline, reducing the emissions to 1,149 Mt in
FY2016, still more than in FY2010 before theearthquake.

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IEEJ © July 2015. All Rights Reserved.

Table 4 | Primary energy supply
Historical

Projections

Year-to-year changes

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

Primary energy supply (Mtoe)
Coal
Oil
Natural gas
Hydro
Nuclear
OthersSelf-sufficiency rate
Energy intensity (FY2005=100)
Energy-related CO2 emissions (Mt)
(FY2013=100)

514.2 484.9 488.4 473.7 477.4 477.1 -3.0%
119.2 117.7 126.1 124.4 125.3 125.5 -1.3%
212.0 221.6 214.5 199.0 196.5 188.2 -7.2%
95.6 116.4 117.9 119.4 118.4 112.1 1.3%
18.2 16.7 16.9 17.7 18.7 18.7 4.2%
60.7
3.4
1.9
0.0
2.2 13.2 -100%
8.7
9.2 11.0 13.3 16.4 19.3 20.7%
18.0% 7.0% 7.0% 7.4% 8.6% 11.6%
0.4p
94.1 87.5 86.4 84.6 83.8 82.1 -2.1%
1,139 1,221 1,235 1,192 1,185 1,149 -3.5%
92.2 98.9 100.0 96.5 96.0 93.1
..

0.8%
0.7%
-1.3%
-0.8%
5.7%
..
23.4%
1.3p
-1.0%
-0.5%
..

-0.1%
0.2%
-4.2%
-5.3%
0.2%
500%
18.2%
2.9p
-1.9%
-3.1%
..

Note: “Others” include geothermal, new energies, etc.
Note: Heat contents have been revised since FY2013.

Economic and Energy Outlook of Japan through FY2016| 12

IEEJ © July 2015. All Rights Reserved.

Final energy consumption
Final energy consumption in FY2015 will
increase for all of industry, buildings andtransport. The total will expand for the firsttime since the Great East Japan Earthquake.
In FY2016, final energy consumption will
fall back in other sectors than industry.
Final energy consumption in FY2015 will
increase in all of the industrial, residential,commercial and transportation sectors due toactive production and freight traffic under an
economic recovery as well as temperaturefactors. Total consumption will rise by 0.5% for
the first increase in five years. Nevertheless, theFY2015 consumption level will be still 7% lessthan in FY2010 before the Great East Japan
Earthquake.
In
FY2016,
final
energyconsumption will turn down on energy
conservation efforts and slip below the FY2014
level, posting a 0.6% fall from FY2015. Energy
consumption will decline in the residential,commercial and transportation sectors whilelevelling off in the industrial sector where
production will expand.
The industrial sector will score a small increaseof 0.2% in FY2015 due to a rebound in
production including vehicles and electricalmachinery. City gas, electricity and coal will
increase by 0.4-0.5 million tonnes of oil
equivalent, while oil will decline due to progressin fuel switching. Although production will
expand further in FY2016, the sector will leveloff due to energy conservation and an ethylene
production cut.
The residential sector will post a 0.7% increase
in FY2015, the first rise since the earthquake,
due to temperature factors and price drops.
Electricity will expand substantially as

Economic and Energy Outlook of Japan through FY2016

air-conditioning
demandincreasesontemperature factors. City and liquefied
petroleum gases will also rise due to greater
demand for space and water heating. Kerosene,
however, will decline on consumers’ switch toother fuels. The sector will fall in FY2016 by
1.0% from the previous year due to energy
conservation effects, slipping below the FY2014
level. Nevertheless, electricity will increaseslightly on steady demand for all-electric homes.
City gas will decline under the long-continuing
trends including a decline in the average family
size and the penetration of energy-efficientequipment. Kerosene and LPG will decrease
because of fuel switching.
The commercial sector will expand in FY2015 by
1.2% from the previous year due to theeconomic recovery and temperature factors.
Electricity will rise for the first time in two years
because of air-conditioning demand growth.
City gas will increase on the diffusion of gas
air-conditioning and cogeneration systems. In
contrast, kerosene and heavy fuel oil A willcontinue declining due to fuel switching. In
FY2016, the commercial sector will log a small
fall of 0.2% on progress in energy conservation
for air-conditioning and lighting equipment.
The transportation sector will increase in FY2015
by 0.5% from the previous year for the first risein three years due to gasoline and diesel oil
prices fall following the crude oil price plunge,
abnormal weather in the previous year and thefading impact of the VAT increase in April 2014.
In FY2016, the sector will fall back with a 1.8%
decline on a peaking of automobile ownership,
fuelefficiency
improvements
underfuel-efficient vehicles’ growing share, and theimprovement of transportation efficiency.

| 13

IEEJ © July 2015. All Rights Reserved.

Table 5 | Final energy consumption
Estimation
Historical
Projections
Year-to-year changes
FY2010 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

Final energy consumption (Mtoe)
Industry
Buildings
Residential
Commercial
Transport
Coal and coal products
Petroleum products
City and natural gases
Electricity
Others339.4 321.8 321.6 311.6 313.2 311.3
158.3 148.6 151.4 146.7 147.0 147.0
98.0 92.7 90.8 88.0 88.8 88.2
54.7 51.6 50.1 48.6 48.9 48.4
43.4 41.1 40.7 39.4 39.9 39.8
83.1 80.4 79.5 77.0 77.3 76.0
35.9 34.3 36.2 34.3 34.7 34.7
176.2 165.7 164.0 157.7 157.0 153.7
34.3 34.7 34.3 34.1 34.7 35.4
89.8 84.6 84.5 83.0 84.3 84.9
3.2
2.5
2.6
2.4
2.5
2.6

-3.1% 0.5%
-3.1% 0.2%
-3.1% 0.9%
-3.1% 0.7%
-3.1% 1.2%
-3.2% 0.5%
-5.3% 1.0%
-3.8% -0.4%-0.6% 1.9%
-1.8% 1.5%
-4.9% 1.5%

-0.6%
0.0%
-0.6%
-1.0%
-0.2%
-1.8%
0.1%
-2.1%
1.9%
0.7%
3.5%

Note: Industry includes non-energy use.

Economic and Energy Outlook of Japan through FY2016| 14

IEEJ © July 2015. All Rights Reserved.

Electricity sales and power generation mix (electric utilities)
large industrial users will post a 2.1% increase as
they increase in all major industries other thanthe paper-pulp industry that is expected to cut
production.

Electricity sales for lighting services will
increase in FY2015 for the first time since
the Great East Japan Earthquake. Sales for
power services including those for large
industrial users will also increase on anindustrial production recovery.
Electricity sales in FY2015 will increase by 1.6%
from the previous year when a substantial
decline emerged on a plunge in production by
manufacturers. Sales for lighting services willscore a 1.5% rise, the first upturn since the Great
East Japan Earthquake, due primarily to steadydemand for all-electric homes and temperaturefactors. Those for power services will also
expand by 1.6% thanks to a manufacturing
production recovery and electricity rate drops
under lower fuel prices. Particularly, sales toElectricity sales will continue growing with a
1.1% increase in FY2016 as an economic
expansion is coupled with a decline in theelectricity saving trend that will come on a
supply-demand balance improvement throughthe restart of nuclear power plants. Sales forlighting services will log a small rise of 0.1% on
an increase in the number of contracts. Those forpower services will expand by 1.6%,
approaching 600 TWh for the first time in six
years. Particularly, machinery manufacturers
will make great contributions to the electricity
sales growth by expanding production.

Table 6 | Electricity sales (electric utilities)
Historical

Projections

Year-to-year changes

FY2010 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

Total (TWh)Lighting services
Power servicesof which: Large-scale industrial users
Mining and manufacturing
Chemicals
Iron and steel
Machinery926.6 870.9 871.5 851.4 865.0 874.5
304.2 286.2 284.3 273.1 277.1 277.5
622.4 584.7 587.2 578.3 587.8 597.0
283.2 267.4 269.3 266.8 272.4 279.7
234.4 221.3 222.8 220.4 224.8 231.5
28.1 26.3 26.6 26.3 26.7 27.0
36.3 36.0 37.3 36.6 36.8 38.2
74.6 69.0 69.2 69.0 71.0 73.5

-2.3%
-4.0%
-1.5%
-0.9%
-1.1%
-1.1%
-1.9%
-0.4%

1.6%
1.5%
1.6%
2.1%
2.0%
1.4%
0.3%
2.9%

1.1%
0.1%
1.6%
2.7%
3.0%
1.1%
4.0%
3.6%

Note: Power services and total include specified-scale demand.

Nuclear power plants will resume
operation in FY2015. Fossil fuels’ share of
total power generation in FY2016 will fallto 78%, the lowest since the Great East
Japan Earthquake.
In FY2015, new energies’ share of electricity
generation will rise by 1.4 percentage points
from the previous year due to the further
penetrationofnon-residential
solar
photovoltaics. Nuclear will rise to 1.1% ascommercial operations are resumed in latesummer or early fall. LNG will post the largest

Economic and Energy Outlook of Japan through FY2016

fall of 1.5 points as it is gradually withdrawn
from the dominant base electric source position
given in emergency response to the earthquake.
The share for oil, etc. will decline by 0.9 points.
Oil-fired power generation, however, will
maintain a certain share as it plays a role inadjusting power generation to peak demand.
Coal-fired power plants will stably operate as abase electricity source, though seeing a 0.3-point
fall in their share of total power generation.
In FY2016, nuclear and new energies will further
expand their shares. Fossil fuel-fired will drop to78%, the lowest since the earthquake. The share,| 15

IEEJ © July 2015. All Rights Reserved.

however, will still be 16 points higher than
before the earthquake. LNG will log the largest

decline of 4.2 points like as in the previous year.

Table 7 | Power generation mix (electric utilities)
Historical
Projections
Year-to-year changes
FY2010 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016
Electricity generated and purchased (TWh)1,028 962.7 963.5 936.8 953.0 964.4 -2.8%

Share
Hydro
Fossil fuel-fired thermal
Coal
Natural and city gases
Oil, etc.
Nuclear
New energyies and others

1.7%

1.2%

Year-to-year changes(9%) (8%)(62%) (88%)(25%) (28%)(29%) (43%)(8%) (18%)(29%) (2%)(1%) (2%)

8%
88%
30%
44%
14%
1%
2%

9%
87%
30%
46%
11%
0%
4%

9%
84%
30%
45%
10%
1%
6%

9%
78%
30%
40%
8%
7%
7%

+0.4p +0.3p -0.1p-0.9p -2.7p -6.6p+0.5p -0.3p -0.3p+2.3p -1.5p -4.2p-3.8p -0.9p -2.1p-1.0p +1.1p +5.4p+2.6p +1.4p +1.3p

Note: Only for general electric utilities until FY2012.

Economic and Energy Outlook of Japan through FY2016| 16

IEEJ © July 2015. All Rights Reserved.

City gas sales (city gas utilities)
City gas sales will set a record high each in
FY2015 and FY2016, led by those forindustrial uses.
City gas sales in FY2015 will increase by 2.0%
from the previous year to a record high of morethan 41 billion cubic metres due to a production
recovery mainly for manufacturers, the services
sector’s invigoration, leap-year effects andcolder winter weather than the previous year.
Furthermore, the penetration of city gas-fuelledcogeneration systems including stationary fuelcells after the Great East Japan Earthquake will
accelerate, contributing to sales growth. In
FY2016, city gas sales will increase by 1.8% asindustrial production expands to meet alast-minute demand increase before the VAT
hike in April 2017. Led by those to industry, city
gas sales will expand to 41.7 billion m3, setting arecord high for the second straight year.
Sales to the residential sector in FY2015 will
increase by 1.2% thanks to leap-year effects,
temperature factors and the further penetrationof household fuel cells and other city gas using
equipment. In FY2016 when temperatures will
stay unchanged from the previous year, sales tothe sector will log a small fall of 0.4% in linewith the diffusion of highly efficient water
heating systems. The residential sector’s share of
total city gas sales will decline to a record low of
23% from more than 50% in and before FY1990.
Sales for commercial and other uses in FY2015
will increase sharply (by 2.6% for commercial
uses and 2.9% for other uses) due to a recovery
in the services sector including commercial
facilities, office buildings and restaurants, adecline in the electricity-saving trend andEconomic and Energy Outlook of Japan through FY2016

greater air-conditioning demand caused byleap-year and temperature effects, despite
improvements in the efficiency of gas using
equipment. In FY2016, they will expand further(by 0.9% for commercial uses and 0.7% for otheruses) as the penetration of new gas equipment
such as micro gas engines and gas heat pumps is
combined with existing gas equipment’s
growing operations. Sales for other uses will hit
a record high since hospitals, public facilities
and other facilities introduce cogeneration
systems
in
line
with
their
growing
consciousness of emergency electricity sources
after the earthquake.
Sales for industrial uses in FY2015 will increaseby 2.2% from the previous year to a record highof 23.2 billion m3, rewriting the record for the
first time in three years. Sales for manufacturing
will expand by 2.8% due to rising capacity
factors for gas engines, gas boilers and otherexisting gas equipment, growing new gas
demand accompanying industrial furnaces’ fuelswitching, and lower gas prices. However, sales
for power generation will decline by 2.6% as theoperating rate falls at a large city gas-fired
power unit (the seventh unit at the Kashima
power station). Sales for industrial uses willgrow steadily in FY2016, scoring a 3.0% increase.
Whilst sales for power generation will post alimited increase of 0.6% as more nuclear power
plants restart, those for manufacturing will log arobust expansion of 3.3%. Overall city gas sales
for industrial uses will reach 23.9 billion m3,
rewriting the record for the second straight year.
Industrial gas sales’ share of total city gas sales
will rise to 57% from only 26% in FY1990.

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IEEJ © July 2015. All Rights Reserved.

Table 8 | City gas sales (city gas utilities)
Historical

Projections

Year-to-year changes

FY2010 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

Total (Billion m3)
Residential
Commercial
Industrial
For general industries
For electric utilities
Others39.28 40.33 39.82 40.16 40.97 41.69
9.79 9.80 9.55 9.58 9.69 9.66
4.75 4.52 4.49 4.34 4.45 4.49
21.61 22.92 22.20 22.74 23.23 23.92
20.18 21.03 20.26 20.07 20.62 21.30
1.43 1.89 1.94 2.68 2.61 2.62
3.13 3.09 3.58 3.50 3.60 3.62

0.9% 2.0% 1.8%
0.3% 1.2% -0.4%-3.4% 2.6% 0.9%
2.5% 2.2% 3.0%
-0.9% 2.8% 3.3%
37.9% -2.6% 0.6%
-2.2% 2.9% 0.7%

Notes: Converted at 1 m3 = 41.8605 MJ (10,000 kcal)

Economic and Energy Outlook of Japan through FY2016| 18

IEEJ © July 2015. All Rights Reserved.

Fuel oil and LPG sales, and crude oil throughput
The sales volume decline in FY2015 will
decelerate due to the oil price plunge andother factors. In FY2016, sales volume will
slip below 180 billion litres for the firsttime in 47 years as fuel oil C for power
generation decline substantially.
The downward trend of fuel oil sales volume
will weaken in FY2015 due to the oil priceplunge and leap-year effects, posting a 0.4%
drop from the previous year. In FY2016, sales
volume will decline by 3.4% with all fuel oil
categories posting drops on progress in energy
conservation and fuel switching, slipping below
180 GL for the first time in 47 years.
Gasoline sales in FY2015 will increase by 0.6%
from the previous year for the first rise in five
years as a rebound from a plunge under theprevious year’s bad weather is coupled with aprice drop and leap-year effects. In FY2016,
however, gasoline sales will fall back with a
1.8% drop due to a long-term penetration of
hybrid and other fuel-efficient vehicles andgrowth in the mini-vehicle fleet.

from the previous year, slipping below 16 GL for
the first time in 46 years.
Diesel oil sales in FY2015 will score a slight riseof 0.1% due to a freight traffic increase amid an
economic recovery and lower prices, althoughthose for industrial uses will decrease on fuelswitching. In FY2016, diesel oil sales will limit
their fall to 0.1% despite continuous
improvements in truck transportation and fuelefficiencies as freight traffic expands.
Heavy fuel oil A sales will decline by 3.9% and5.4% in FY2015 and in FY2016, respectively, due
to switching to other fuels and progress inenergy conservation under environmental
conservation measures, although manufacturers’
production will expand.
Heavy fuel oils B and C sales in FY2015 will fallby 2.0% from the previous year on progress infuel switching and energy conservation mainlyin the industrial sector. In FY2016, they will post
the largest decline among fuel oil categories of
16.2% to a 57-year low as demand for these fuels
falls rapidly on the restart of more nuclear
power plants. Their share of total fuel oil sales
will drop to a record low of 8%.

Naphtha sales that depend on ethylene
production will post a slight decrease of 0.1% in
FY2015. In FY2016, they will log a sharp declineof more than 1 GL or 2.3%. The decline, however,will be slower than for overall fuel oil sales since
naphtha is less affected by energy conservationand fuel switching than other petroleum
products. Naphtha’s share of total fuel oil sales
will expand to 24% in FY2016.

LPG sales will level off in FY2015 despite along-term trend of switching to other fuels asbuilding
sectordemandincreasesontemperature factors. They will post a small fallof 0.1% in FY2016 as the switching makes
progress in both industrial and building sectors.
Sales volume will thus remain around15.5 million tonnes.

Kerosene sales in FY2015 will drop by 1.0% fromthe previous year on progress in switching fromkerosene to other fuels, although colder winterweather may stimulate kerosene demand. In
FY2016, sales will post an even faster drop of
3.6% with temperatures remaining unchanged

Crude oil throughput will post faster declines(0.7% in FY2015 and 3.7% in FY2016) than fueloil sales as drops are large for petroleum
products other than naphtha and LPG. Imports
account for a greater share for naphtha and LPG
than for other petroleum products.

Economic and Energy Outlook of Japan through FY2016| 19

IEEJ © July 2015. All Rights Reserved.

Table 9 | Fuel oils and LPG sales, and crude oil throughput
Historical

Projections

Year-to-year changes

FY2010 FY2012 FY2013 FY2014 FY2015 FY2016 FY2014 FY2015 FY2016

Fuel oils (GL)
Gasoline
NaphthaJet fuel
Kerosene
Diesel oil
Heavy fuel oil A
Heavy fuel oils B and C
For electric utilities
For other users
LPG (Mt)
Crude oil throughput (GL)

196.0 197.8 193.6 183.0 182.2 176.0 -5.5%
58.2 56.2 55.5 53.0 53.3 52.3 -4.5%
46.7 43.2 45.7 43.9 43.9 42.8 -4.0%
5.2
4.0
5.1
5.3
5.3
5.3 5.7%
20.4 18.9 17.9 16.7 16.5 15.9 -7.0%
32.9 33.4 34.1 33.6 33.6 33.6 -1.5%
15.4 13.8 13.4 12.4 11.9 11.2 -8.0%
17.3 28.4 21.9 18.1 17.7 14.9 -17.3%
7.7 19.4 14.4 10.8 10.6
8.0 -25.1%
9.7
9.0
7.5
7.3
7.1
6.9 -2.2%
16.5 16.6 15.5 15.4 15.4 15.4 -0.7%
208.9 197.6 200.4 189.0 187.6 180.6 -5.7%

Economic and Energy Outlook of Japan through FY2016-0.4% -3.4%
0.6% -1.8%-0.1% -2.3%-0.2% -0.6%-1.0% -3.6%
0.1% -0.1%-3.9% -5.4%-2.0% -16.2%-1.5% -24.8%-2.8% -3.5%
0.0% -0.1%-0.7% -3.7%| 20

IEEJ © July 2015. All Rights Reserved.

Renewable energy power generation
Renewable energy power generation
capacity will reach 63 GW with approved
facilities’ cost burden on consumers
totalling JPY50 trillion.
Japan's feed-in-tariff, or FIT, system, in which
utilities purchase electricity generated withrenewable energies at fixed prices, has enteredits fourth year. Great expectations are placed on
renewables that represent purely domestic
resources and emit no carbon dioxide. A
long-term energy supply and demand outlook
by the Advisory Committee for Natural
Resources and Energy projects renewables toaccount for 22-24% of electricity generation in
2030. Meanwhile, various relevant challenges
have emerged.
Any rapid penetration of renewable energy
power generation sharply expands the costburden on consumers. As the system has beenrevised to cancel FIT approval for projects forwhich land and equipment have yet to be
secured, set power utilities’ connection
capacities, expand the scope of systems subject
to output curtailment and enhance such control,
any extremely rapid increase in capacity
approved under the FIT system has been helddown.
If 99.0 GW in renewable energy power
generation capacity approved by the end of
February 2015 (including 79.7 GW for solar PV
and 4.5 GW for wind) is all put into operation,
however, the cost burden on consumers over 20
years may total JPY50 trillion 1 . The burden
amounts to a hike of JPY2,900/MWh in
The marginal avoidance cost is estimated at
JPY10,400/MWh based on the renewable energy FIT
system on the website of the Agency for Natural
Resources and Energy. The capacity factor is assumed
at 20% for wind power, 12% solar PV, 70% forgeothermal energy, 45% for hydro and 70% forbiomass. The remaining FIT periods for capacity
introduced before the FIT system launching are taken
into account.
1

Economic and Energy Outlook of Japan through FY2016

electricity rates – 12% for the residential sector
and 14% for the industrial sector compared withthose before the FIT. Particularly, the rapid
expansion of solar PV generation subject tohigher tariffs is pushing up the burden. As
approved facilities are completed and put into
operation, the estimated burden increase will
come about.

Figure 2 | Cumulative burden of FIT over 20
years
In operation

10

14

Approved

420Solar PV for
non-residence

50

10

20
30
40
50
JPY trillion
Wind Solar PV for Others
residence

Note: As of February 2015.

Power generation output control has beenenhanced to counter the massive diffusion ofvariable solar PV and wind power generationthat destabilises power grids. Concern about theenhanced output control affecting profitabilityof power generation could prompt business
operators to cancel generators approved under
the FIT system or slow down new approval
mainly for non-residential solar PV. However,available renewable energy power generation
capacity subject to the FIT system will expand
from 40.5 GW in March 2015 to 62.9 GW at theend of FY2016 as generators under construction
are completed. Particularly, non-residential solar
PV will increase to 35.7 GW accounting for amajority of the total. Capacity totals 5 GW forwind for which environmental assessment isongoing or has been completed. Given long leadtimes required before operation, however, thecapacity of wind starting operation by the end of
FY2016 will be limited to 1.2 GW. Renewableenergy power generation in FY2016 will total
118.1 TWh (including 47.2 TWh by solar PV,
7.4 TWh by wind and 38.0 TWh by small andmedium-scale hydro), accounting for some 10%of Japan’s total power generation.

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IEEJ © July 2015. All Rights Reserved.

Figure 3 | Installed capacity in operation ofrenewable power generation
40

35.7

GW

30

20
10

Solar PV for
non-residence

26.1

Solar PV for
residence

16.5

Wind

7.4

8.3

9.3

3.0

3.8

4.2

Biomass

3.6
3.3
2.9
0
2011 2012 2013 2014 2015 2016

Notes: As of the end of fiscal year. Excludes small andmedium-scale hydro, etc.

Discussions are ongoing on how best to revise
the FIT system to correct the bias for solar PV.
Wind power generation costs less than otherrenewables while featuring volatility. Gridmeasures to solve the volatility must be
expanded before wind power generation is
promoted. Geothermal power generation has
failed to diffuse due to constraints regarding
environmental assessment and location, while
fuel procurement is limited for biomass power
generation. Both geothermal and biomass arestable electricity sources on which great hopes
are placed. However, a challenge is how to cut
costs further.
While great hopes are placed on renewableenergy, the problem is how to balance thediffusion of renewable energy power generation
with restrictions on the burden on consumers.

Economic and Energy Outlook of Japan through FY2016| 22

IEEJ © July 2015. All Rights Reserved.

Impacts of nuclear power plants’ restart
The Sendai Power Station becoming thefirst nuclear power plant to restart under
new regulation standards, with attention
paid to other plants.
In May 2015, Kyushu Electric Power Co.'s
Sendai Power Station received approval for its
operational safety programmes, the last of thethree approvals required for nuclear power
plants under Japan's new regulation standards.
The other two are permission for a change in thereactor installation license and approval of theconstruction work plans. It is the first nuclear
power station to obtain all three approvals
under the new standards put into force in July
2013. The power station will have to start up its
reactors and pass a pre-service inspection before
launching commercial operations.
This chapter assumes four cases for the restart ofnuclear power plants in consideration ofprogress in screening under regulation
standards, the presence or absence of large-scaleconstruction and application timings, andassesses their respective impacts. In the
Reference Scenario, three to five reactors are
assumed to gradually restart operations every
about half year on average after the Sendai
Power Station launches commercial operations
late summer or early fall of 2015. Therefore, atotal of five reactors are assumed to restart
operations by the end of FY2015, being inservice for three months on average andEconomic and Energy Outlook of Japan through FY2016

generating 10.6 TWh of electricity in the year.
Thirteen reactors will be in service at the end of
FY2016, operating for six months on averageand generating 63.9 TWh in the year. The
electricity generated will be limited to 22% of
the FY2010 level before the Great East Japan
Earthquake.
In the High Case, one reactor per month isassumed to restart operations on average withscreening procedures streamlined. Eight reactors
will thus restart operations by the end of FY2015.
A total of 17 reactors will restart operations by
the end of FY2016, operating for 10 months on
average and generating 132.7 TWh (double theReference Scenario level) in the year.
In the Low Case, the initial restart is assumed tocome slightly later than in the Reference
Scenario. Subsequent restart will come in someone year after the initial one. Two reactors will
be restarted by the end of FY2015. Three will bein operations by the end of FY2016, operating
for eight months on average and generating
15.3 TWh (76% less than in the Reference
Scenario) in the year.
In the hypothetical Highest Case, 24 reactors forwhich applications for regulation standard
conformity tests have been submitted, excluding
one at the Oma Nuclear Power Station now
under construction, are assumed to operate at
80% of their capacity factor in FY2016.

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IEEJ © July 2015. All Rights Reserved.

Figure 4 | Timetable of activities on nuclear power plant assessment
FY2015FY2016Jul

Low Case

Oct

Jan

Apr

Assessment

Jul

Oct

Jan

Commercial operation

Restarted, cumulative

2 units

3 units

Commercial operation

Reference Scenario

Assessment

Restarted, cumulative

5 units

13 units

Commercial operation
Assessment

High Case

Restarted, cumulative

In the Reference Scenario, Japan's fossil fuelimports in FY2016 will increase by
JPY2.6 trillion from FY2010. The average
power generation cost will rise by
JPY2,700/MWh. The energy self-sufficiency
rate will fall by 6.4 percentage points whileenergy-related carbon dioxide emissions will
increase by 10 Mt.
FY2016 fossil fuel imports in the High Casewill be JPY1.2 trillion less than in the Low
Case. The average power generation cost will
be JPY1,300/MWh less. GDP will be 0.1%
more. The energy self-sufficiency rate will be
5.1 percentage points higher. CO2 emissions
will be 55 Mt less.
FY2016 fossil fuel imports in the Highest Casewill be JPY1.5 trillion less than in the Low
Case. The average power generation cost will

Economic and Energy Outlook of Japan through FY2016

8 units

17 units

be JPY1,700/MWh less. GDP will be 0.2%
more. The energy self-sufficiency rate will be
6.4 percentage points higher. CO2 emissions
will be 70 Mt less.
In June 2015, an application for regulation
standard conformity tests for the No. 3 unit of
the Hamaoka Nuclear Power Station was
submitted, bringing the total number ofreactors subject to such applications to 25.
Since the Great East Japan Earthquake,growing fossil fuel imports for power
generation have deteriorated the tradebalance, lowered the energy self-sufficiency
rate and expanded CO2 emissions. Even atpresent when international energy prices havedeclined, nuclear power generation can play amajor role in improving the 3Es – theeconomy, energy security and environment.

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IEEJ © July 2015. All Rights Reserved.

Table 10 | Impacts of restarting nuclear power plants
FY2010[FY2015]

Cumulative number of1

FY20016
restarted nuclear reactors
Average period for operation (months)
Electricity generation by nuclear (TWh)

..
..
..
288.2
FY2010

EconomyPower generation cost2 (JPY/kWh)Total fossil fuel imports (JPY trillion)
Oil
LNG
Trade balance (JPY trillion)
Real GDP (JPY2005 trillion)
Gross national income (JPY trillion)

FY2016
Low Case

Reference
Scenario

[2]
3
8
15.3

[5]
13
6
63.9

High Case Highest Case

[8]
17
10
132.7

..
24
..
165.9

FY2016 (Changes from FY2010)
Low Case

Reference
ScenarioHigh Case Highest Case

(8.2)
18.1
12.3
3.5
5.3
512.7
493.8

+3.3
+3.1
+1.2
+2.0
-9.2
+32.1
+46.3

+2.7
+2.6
+1.0
+1.7
-8.7
+32.3
+46.7

+2.0
+1.9
+0.8
+1.2
-8.1
+32.7
+47.3

+1.6
+1.6
+0.7
+1.0
-7.9
+32.9
+47.5

232.3
73.3
70.6
18.0%
1,139
[-7.8%]

-23.7
+17.2
+17.9
-8.5p
+33
[-5.1%]

-26.7
+12.0
+12.7
-6.4p
+10
[-6.9%]

-30.7
+4.6
+5.3
-3.4p
-22
[-9.5%]

-32.6
+0.9
+1.6
-2.0p
-37
[-10.8%]EnergyPrimary energy supply
Oil (GL)
Natural gas (Mt of LNG equivalent)
LNG imports (Mt)

-ment

EnvironSelf-sufficiency rate
Energy-related CO2 emissions (Mt-CO2)

Changes from FY2013

Reference Scenario: The first commercial operation resumes in late summer or early fall 2015.
Restarts of three to five plants follow in every about six months.
Low Case: The first restarts delay a bit compared with the Reference Scenario. The second group restarts
about one year later.
High Case: The first commercial operation resumes in late summer or early fall 2015.
Then one plant restarts about a month on average thanks to more efficient assessment.
Highest Case: A hypothetical case in which 24 applicant plants for the assessment generate electricity
with 80% of capacity factor.
1. Thirty-nine reactors operated at the end of 2010.
2. Power generation cost in FY2010 is for the general electric utilities, estimated based on
their profit-and-loss statements.

Economic and Energy Outlook of Japan through FY2016| 25

IEEJ © July 2015. All Rights Reserved.

Assessing risk of rising energy prices
A replaced key factor for pushing up
energy import spending

in FY2014 as fuel consumption for non-power
generation decreased.

Fossil fuels are the largest import item for Japan.
Since the Great East Japan Earthquake, theirimport spending has risen to a record high due
to price rises and growing fossil fuel-fired power
generation, helping plunge the country into a
trade deficit.

Prepare for the risk of rising energy pricerises

The rapid oil price decline since the summer of2014 has come as a blessing for Japan that now
depends heavily on fossil fuel-fired power
generation. In FY2014, the average oil importprice fell by $21/bbl from the previous year to afour-year low of $89/bbl. A drop in the LNG
import price, which reflects any oil price change
in about three months after the change, waslimited to 5%. Even so, the fuel price decline
worked to reduce Japan’s fuel import spending
in the year by JPY4.2 trillion from the previous
year (under prices in May 2015, the reduction in
the FY2014 fuel import spending would havebeen JPY13.0 trillion).

Figure 5 | Changes in fossil fuel importspending and contribution [comparedwith FY2010]
30
30

+10
+5

20
20

0

15
15

-5

JPY trillion

25
25

Contribution(right axis)

Prices in thedollarPrices in the dollar
Exchangerates
Exchange
rates
Quantity

Quantity

For power generation

10
10

For power
Import spending-102010 2012 2014 2016
generation2010 2012 2014 2016
Note: The Reference Scenario in and after FY2015

The yen hit a record high of 75 to the dollar in2011 and depreciated to the FY2014 average of
JPY109/$. The weakening yen worked to raise
the fuel import spending in FY2014 by
JPY2.4 trillion, becoming the largest factor topush up the fuel import spending. The fuelimport volume’s contribution to the fuel importspending increase from FY2010 turned negative

Economic and Energy Outlook of Japan through FY2016

OPEC refrained from indicating any intent to
cut oil production at its meeting in June as well,
working to cap oil prices. Meanwhile, aspeculated stagnation in shale oil production
expansion and other factors have led oil market
participants to become alert to a possible upturnof energy prices. Therefore, we assessed theimpacts of the oil price’s $10/bbl rise from theReference Scenario in the projection period.
In FY2016 as the second year of the oil price
upturn, a JPY1.9 trillion increase in fuel imports
and other changes will lower Japan’s real GDP
by 0.4%. Gross national income per capita will
fall by JPY15,000. Japan’s vulnerability to energy
price rises has grown more serious due to its
excessive dependence on fossil fuel-fired power
generation as well as the yen’s sharp
depreciation expected to cause disadvantages.
If the renewed energy price rises are coupledwith a sluggish restart of nuclear power plants
and a greater penetration of renewable energy
power generation, electricity costs including
fossil and nuclear fuel expenses and FITpurchasing costs may increase by JPY1.0 trillion
from JPY8.0 trillion in the Reference Scenario to
JPY9.0 trillion (the government has adopted atarget of reducing electricity costs in FY2030 by
2-5% from JPY9.7 trillion in FY2013).
In order to achieve stable growth without being
shaken by overseas developments, Japan should
continuously take effective measures instead ofbeing complacent with present low energy
prices. Over a short term, an effective measure is
to steadily restart nuclear power plants. Over a
medium to long term, Japan will have to pursue
energy conservation and the best energy mix,
promote the penetration of cheap domestically
produced energy sources and diversify energy
sources and procurement means.

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IEEJ © July 2015. All Rights Reserved.

Table 11 | Impacts of changes in energy price
FY2015

PricesReference High Prices

Crude oil import, CIF ($/bbl)
LNG import, CIF ($/t)

EconomyReal GDP (JPY2005 trillion)
GNI per capita (JPY thousand)
Balance of trade (JPY trillion)
Fossil fuel imports

EnergyConsumer price index (2010=100)
Primary energy supply (Mtoe)
Oil (GL)
Natural gas (Mt of LNG equivalent)

Scenario

Case

64
470
534.8
4,186
-1.8
19.5
103.7
477.4
214.8
90.1

71
505
534.2
4,175
-3.4
21.3
103.9
475.6
213.2
89.9

FY2016
Changes+11.7%
+7.5%
-0.1%
-0.3%
+89.4%
+9.2%
+0.2%
-0.4%
-0.7%
-0.2%

Reference High Prices
Scenario

Case

69
502
545.1
4,262
-3.4
20.8
104.5
477.1
205.8
85.3

79
561
542.9
4,246
-5.4
23.0
105.0
472.9
202.9
84.5

Changes+14.4%+11.8%-0.4%-0.4%+57.3%+11.0%
+0.4%
-0.9%
-1.4%
-1.0%

Contact: report@tky.ieej.or.jp

Economic and Energy Outlook of Japan through FY2016| 27